Top Glove stock downgraded to Hold by CLSA on pricing competition

CLSA downgraded Top Glove Corp Bhd to Hold from Outperform, reducing its price target to RM0.70 from RM1.05, citing persistent pricing competition in non-US markets and lower-than-expected average selling prices that led to a disappointing 9MFY25 core profit of RM39m. The firm cut FY25-27 EPS estimates by 5-25%, anticipating that earnings recovery will be hampered by continued competition and increased Chinese supply from ASEAN, concluding that the stock's earnings turnaround is already priced in, limiting potential upside.

Analysis

CLSA has downgraded Top Glove Corp Bhd (TOPG:MK) to Hold from Outperform and cut its price target to RM0.70 from RM1.05, signaling a significantly tempered outlook. The primary catalyst for this revision is persistent pricing competition in non-US markets, which led to a 9MFY25 core profit of RM39m that missed expectations. While the company is benefiting from easing input costs and a gradual recovery in US demand, these positives were insufficient to offset the negative impact of lower-than-expected average selling prices. Looking ahead, CLSA anticipates earnings recovery will be constrained by both continued price wars and an impending increase in supply from Chinese manufacturers operating in ASEAN countries. Consequently, the research firm has reduced its FY25-27 earnings per share estimates by 5-25% and now bases its valuation on a lower target P/E multiple of 30x FY26 earnings. The core thesis is that the market has already priced in an earnings turnaround, leaving limited potential upside from the current stock level.

Key Decisions for Investors

• Investors should consider that the stock's potential for near-term appreciation may be limited, as CLSA's analysis suggests the anticipated earnings recovery is already reflected in the current valuation.
• Monitor average selling prices (ASPs) in key non-US markets and news on new manufacturing capacity from Chinese competitors in ASEAN, as these are the critical headwinds identified.
• Given the earnings miss and downward revisions to EPS forecasts for FY25-27, it may be prudent to re-evaluate exposure and await evidence of a stabilization in pricing power before increasing positions.